U1 AOS 3: External Environment

Business Management 1&2 2023

External Environment

* involves surrounding factors that impact a business, has minimal control over
* include macro factors and operating factors

Global Considerations - Globalisation

* resulted in Australian businesses facing more international competition than ever before

Global Considerations - Overseas Competitors

* develop understanding on how these businesses operate, identifying their strengths and weaknesses
* planning consider how they can achieve lower costs or implement strategies to distinguish themselves and develop competitive advantage

Global Considerations - Overseas Markets

* access larger and more diverse customer base, allowing a business to reduce its dependence on its local market
* essential for business owner to be aware of different customer needs and cultural expectations
* may need to adapt products to suit customer needs in different locations

Global Considerations - Offshoring of Labour

* involves business moving its services or processes to another country
* should consider time zone differences, as it can disrupt business processes
* reasons why businesses consider offshoring labour
* legal & government regulations: consider legal and government regulations in the offshoring country, as tax wages and minimum wages may differ
* communication & cultural barriers: language spoken & level of English may differ; must consider cultural norms
* business reputation: sending labour overseas may have impact on increasing unemployment rate in local economy and harm reputation

Global Considerations - Exchange Rates

* each day, value of country can fluctuate, therefore business must anticipate changes
* exchange rates - relative price at currency of country can be exchanged for currency of another country
* Currency appreciation: increase in value of currency against foreign currency
* beneficial for Australian business that purchases materials from overseas countries as its Australian dollars ca buy more of a foreign currency
* make business’s goods and services more expensive for overseas buyers - less attractive
* Currency depreciation - decrease in value of currency
* increase cost of imports
* cheaper for overseas buyers - attractive in overseas markets

Global Considerations - Online sales

* involve buying and selling goods and services using the internet (e-commerce)
* reach wider range
* policies and processes - shipping, refunds, returns
* protected by cyber attacks - breach of privacy resulting in loss of customer trust

Global Considerations - Copyrights

* exclusive right to control use of creative use
* not engaging in copyright infringement - result in fines and penalties

Global Considerations - Trademarks

* exclusive right granted over unique aspect of business
* original and unique to avoid trademark infringement - no reproduction of unauthorised materials

Global Considerations - Patents

* exclusive rights to use innovative devices, substances, methods and processes
* protect invention from competitors

Economic Conditions

* productive performance and financial stability of nation

Economic Conditions - Interest rates

* amount charged, expressed as percentage of principal, by leader to borrower for use of assets
* loans - taken out for initial costs
* interest rates low - business loans less expensive
* interest rates high - pay more for amount borrowed

Economic Conditions - Employment Levels

* percentage of labour force working in paid emplotment
* availability of workers - influence wages to attract workers
* unemployment rates low - employment levels high
* unemployment rates high - employment levels low

Economic Conditions - Tax Rates

* percentage of income or spending required to be paid to government
* tax obligation - budget for additional business expenses
* companies required to pay 25%-30% of profit

Economic Conditions - Business & Consumer Confidence

* measure of consumers’ feelings and expectations about current and future economic conditions
* when high - more confident in spending
* when low - less confidence in spending

Legal & Government Regulations

* laws and roles made by parliaments and governments, as well as decisions made by courts

Legal & Government Regulations - Employment Laws

* obligations employers and employees
* include minimum wages, fair working conditions
* against unfair dismissal and aims to resolve workplace disputes

Legal & Government Regulations - Environmental Legislation

* protect environment - minimise energy use, reducing water use, reusing recycling, and reducing waste
* businesses’ impact on environment and protect limited resources

Legal & Government Regulations - Industry Regulations

* rules specific to businesses within certain industry
* permits or licences relevant to business industry
* eg. Working with Children Check

Legal & Government Regulations - Tax Reguirements

* obtain Australian business number (ABN) - identifies business
* apply for tax file number (TFN) to the Australian Taxation Office (ATO) - allows business to be easily identified for taxation purposes

Legal & Government Regulations - Council Regulations

* local government rules operating in specific geographical area
* location of business - local zoning laws
* operating hours of business - restrictions put in place for certain set of time
* types of signs business displays - restrictions on signage
* renovation of business premises - limit to type of renovation
* waste disposal of business - how business manages waste

Technological Considerations

* invention and innovation of tools that solve problems and enhance processes

Technological Considerations - Automated production lines

* many manufacturing businesses have implemented automated production lines using technology to reduce need for human labour

Technological Considerations - EFTPOS

* method of payment for customers

Technological Considerations - Online Presence

* most businesses have established online presence
* eg. online shop
* website
* customer service

Technological Considerations - Strengths

* usually work quicker, producing more in shorter period of time
* complete more complex and dangerous tasks than human labour
* more accurate - less mistakes and less errors/defects

Technological Considerations - Weakness

* loss of employee’s jobs - replaced & decrease reputation of business
* expensive in short-term
* difficult to customise for individual customer needs

Societal Attitudes & Behaviour

* societal attitudes - collective values, beliefs, opinions held by group of people
* greater awareness about improving physical and mental health and wellbeing
* wellbeing of employees
* environmental sustainability
* hygiene practices

Corporate Social Responsibility Considerations

* CSR
* ethical conduct of business - above and beyond legal obligations

Corporate Social Responsibility Considerations - Environmental

* local suppliers instead of overseas - reduces distance - lowering carbon emissions
* waste management strategies - recycling and reusing excess materials - less landfill
* eliminate non-environmentally friendly packaging
* use renewable sources of energy

Corporate Social Responsibility Considerations - Social Considerations

* local suppliers instead of overseas suppliers - provide employment to locals and boosting local economy
* assist employees when technology replaces them - reduces unemployment and minimising social issues
* encourage volunteer creating a positive impact on improving various social issues

Corporate Social Responsibility Considerations Advantages

* positive business reputation
* attract highly skilled employees who value ethical conduct
* attracts motivated employees
* production process more efficient
* customers willing to pay more for ethically produced goods and services

Corporate Social Responsibility Considerations Disadvantages

* decrease productivity levels because of constant focus
* employees feel overwhelmed to adapt new practices
* time-consuming
* initially expensive

Operating Factors

* primary external factors impacting business that has some control over

Customer Needs & Expectations - Convenience

* customers expect experience that saves time and effort - important for business to plan how they can offer most convenient experience for cusotmers

Customer Needs & Expectations - High quality good/service

* owner should ensure that products are of high standard and operate

Customer Needs & Expectations - Responsive Customer Service

* customers expect business to respond to queries promptly
* business ensure customers able to interact with business in order to earn customer loyalty

Competitor’s Behaviour

* same or similar industry that offer similar good/service
* when planning business - owner consider behaviour of competitors to establish competitive advantage

Competitor’s Behaviour - Selling similar good for lower price

* business may need to reconsider its manufacturing and operating costs to determine if it can lower production costs in order to offer its product at same or similar price to competitors

Competitor’s Behaviour - Selling highly unique good/serivce

* build competitive advangtage and invest in creating good/service with newer or more uniuqe features

Competitor’s Behaviour - Entering industry where few businesses have large market share

* investigate strengths and weaknesses of competitors and take advantage of weaknesses
* continuously innovate in industry

Special Interest Groups

* organisations or group of people seek to influence laws, policies or behaviours to benefit specific cause

Special Interest Groups - Unions

* organisations who represent and speak on behalf of employees in particular industry to product and improve wages and working conditions
* represent and defend employees when issues arise in workplace (eg. discrimination)
* businesses who do not apply with union requests may face significant consequences
* union can legally organise employee strike - negative public reputation

Special Interest Groups - Business Associations

* advise and support businesses in particular industry
* provide information through training programs, seminars, conferences, or personal consultations

Special Interest Groups - Environmental lobby groups

* advocate for production of environment and promote environmental issues to businesses, government and public
* operate in manner that is harmful to environment, often campaign to public and government to prohibit business from continuing its operations